Real Estate Marketing & Beyond
Both rent and home prices continue increasing. It’s never been easy for young people to buy a first home and it’s not getting any easier. Still, buying is often the best decision for several reasons – especially today and especially for Millennials. Personal circumstances always play a big role in this decision but first time buyers living in expensive metro areas really need to weigh the pros and cons of buying -v- renting.
None of this has changed. Here are a few snippets from a similar article I wrote five years ago.
Relentless rent increases year after year add up. Five years ago, there were parts of the country where decent rentals were going for slightly less than $2,000 a month. Today, those rents are approaching $4,000 a month. If you had bought on a 30 year fixed rate mortgage back then, you would still be paying in the $2,000 range. And all of the appreciation in value as well as all of those monthly payments would have built your personal wealth rather than a landlord’s wealth.
Down payments that cost more than a first month rent plus a security deposit is one the most popular arguments for renting. But the fact is every time people move, most people loss a big chunk of the security deposit. And the cost of the next first month rent plus deposit is considerably higher than the last time. Contrast that to the down payment that you’ll probably only actually pay once in your lifetime. Yes, if you buy a bigger house or buy another house across country, there will be a line on the closing paperwork labeled “down payment”. But the reality is that the equity you carry forward from selling your first house covers much more than the down payment for your next house. Chances are that if you made an 8% down payment on your first house, the equity you carry forward to your second house will be more than 20% of the purchase price. You’ll get a better interest rate and won’t pay PMI.
Some people think that by renting, they avoid paying property taxes, insurance, and maintenance. Who are they kidding? Do these people really think the landlord is paying those costs out of the kindness of his/her heart? The reality is rent payments cover the landlord’s mortgage payment (building his/her equity), the taxes, the insurance, plus a monthly profit. The landlord has a fixed mortgage payment each month. Every time the rent is increased, most of it adds to his/her profit margin.
According to an online survey of more than 1,000 active buyers conducted in early March 2018 by Toluna Research for realtor.com, 23% of millennials surveyed indicated that rising rent was a trigger for their home buying purchase. HUD data shows rents were up in 85 of the top 100 metro areas, including nine metros where rents were up by double-digit percentages from a year ago.
There are online calculators for you to analyze your personal finances and situation. You should give serious thought to the buying -v- renting question. Otherwise, you’ll probably be reading an article similar to this in another five years.
What are your thoughts on the buying -v- renting question? Please add your comments.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.
